Sotera Health, a private-equity owned company that operates facilities that sterilize medical products and food, is exploring a potential sale worth as much as $5 billion including debt, people familiar with the matter told Reuters on Tuesday.
The company’s owners, Warburg Pincus and GTCR, are working with investment banks to assist them in the sales process, the people said, asking not to be named because the matter is private. Discussions are in the early stages and there is no guarantee a transaction will result, the sources added.
If a deal to buy the company is successful, it will be one of the largest private equity deals in the healthcare industry this year.
Warburg Pincus declined to comment. GTCR and Sotera did not immediately respond to requests for comment.
Sotera, which changed its name from Sterigenics International last year, could appeal to both private equity buyers and strategic buyers given the stability of its business, one of the people said.
The global private equity industry is sitting on more than more than $1 trillion in uninvested capital and is looking for attractive investments in many industries.
Earlier this year, buyout firm KKR & Co agreed to acquire Envision Healthcare Corp, one of the biggest U.S. providers of physicians to hospitals, for $9.9 billion, including debt.
Ohio-based Sotera has earnings before interest, taxes, depreciation and amortization of around $400 million a year, the people said. As a private company, it does not release earnings publicly.
Sotera was acquired by GTCR in 2011 from private investment firms Silverfleet Capital and PPM America Capital Partners. In 2015, it sold a majority stake to Warburg Pincus.
The private equity firms have grown the business through a series of acquisitions, including a 2014 deal for Nordion, a producer of materials used in the sterilization process. Earlier this year, it acquired Gibraltar Laboratories, a provider of microbiology and analytical chemistry testing.
Sotera also sold its medical isotopes business to BWX Technologies Inc earlier this year, which it said allowed it to focus on faster-growing sterilization technologies.
India’s federal health ministry called on Tuesday for stopping the sale or import of electronic cigarettes and heat-not-burn tobacco devices that companies like Philip Morris International Inc were planning to launch in the country.
India has stringent laws to deter tobacco use, which the government says kills more than 900,000 people every year. But the country still has 106 million adult smokers, second only to China according to the World Health Organization.
In an advisory to state governments, the health ministry said such devices were a “great health risk” and it was possible that children and non-smokers using such products could switch to cigarettes once they get addicted to nicotine.
The government took a position on such products with tobacco giant Philip Morris planning to launch its iQOS smoking device in India. Reuters reported in June that Philip Morris was working towards achieving iQOS’s acceptability as a reduced risk product in the country.
Philip Morris says the sleek, penlike iQOS heats but does not burn tobacco, producing a nicotine-containing vapor rather than smoke and making it less harmful than conventional cigarettes. The company wants to one day stop selling cigarettes altogether.
The health ministry asked Indian states to “ensure” that electronic nicotine delivery systems including e-cigarettes – devices which use a nicotine-laced liquid – as well as heat-not-burn devices are not sold, manufactured, imported or advertised.
Such devices, the ministry said, “are a great health risk to public at large, especially to children, adolescents, pregnant women and women of reproductive age”.
Philip Morris did not respond to Reuters queries. ITC, India’s leading cigarette maker which also sells e-cigarettes, also did not respond.
A senior health official said the government was “sending a strong message” about how such products were harmful for the public.
Last year, a New Delhi resident filed a public interest litigation in the Delhi High Court calling for regulation of e-cigarettes. The court last week asked the federal health ministry to say when it would announce regulatory measures for such devices.
“The case was filed to bring out the absolute absence of regulation. It is now critical that stringent implementation measures are taken,” said Bhuvanesh Sehgal, a Delhi-based lawyer who argued in the case.
In recent years, the Indian government has intensified its tobacco-control efforts, raising cigarette taxes, ordering companies to print bigger health warnings on packs and introducing a quit-smoking helpline.
Piper Jaffray analyst Sean Wieland kept his Overweight rating and $49 price target on Catalent after its Q4 earnings beat, saying the company’s Biologics segment carried the “bulk of growth” while Softgel “waned”. The analyst states that he remains confident in the company’s long-term growth and margin targets in spite of the near term headwinds. https://bit.ly/2LyT88J
Acquisition advances Emergent’s mission, vision and strategic growth plan by:
Diversifying and expanding company’s presence within the public health threats market to respond to the opioid crisis, declared a public health emergency by the U.S. government
Broadening the company’s portfolio of only-in-class medical countermeasures with the addition of NARCAN® (naloxone HCl) Nasal Spray, the only FDA-approved nasal form of naloxone indicated for the emergency treatment of known or suspected opioid overdose
Combining Emergent’s 20-year track record as a trusted partner to the Federal government with Adapt Pharma’s demonstrated success with state and local government and commercial channels
Providing opportunity to further expand awareness and availability of this convenient, easy-to-administer life-saving treatment
Enhancing Emergent’s product development pipeline with new treatment and delivery options to address opioid overdoses
Expected to generate revenues of $200 million to $220 million and to be accretive to adjusted net income and EBITDA in 2019
The company expects that, with the completion of this acquisition and the recently announced acquisition of PaxVax, it will achieve or exceed its growth plan goal of $1 billion in revenue in 2020
Total consideration of up to $735 million, consisting of an upfront payment of $635 million and up to $100 million in cash for potential sales-based milestones. Upfront payment of $635 million consists of $575 million in cash and $60 million in Emergent common stock, all of which are subject to certain adjustments.
Company to conduct conference call on August 28, 2018 at 5:00pm
Emergent BioSolutions Inc. (NYSE: EBS) announced today that it has entered into an agreement to acquire Adapt Pharma and its flagship product NARCAN® (naloxone HCl) Nasal Spray, the first and only needle-free formulation of naloxone approved by the U.S. Food and Drug Administration (FDA) and Health Canada, for the emergency treatment of known or suspected opioid overdose as manifested by respiratory and/or central nervous system depression. Total consideration for the transaction is up to $735 million consisting of an upfront payment of $635 million and up to $100 million in cash for potential sales-based milestones through 2022. The upfront payment of $635 million consists of $575 million in cash and $60 million in Emergent common stock, all of which are subject to certain adjustments under the terms of the agreement.
Upon the closing of the transaction, Emergent will acquire the NARCAN Nasal Spray product and a development pipeline of new treatment and delivery options to address opioid overdose, and bring on approximately 50 employees, located in the U.S., Canada, and Ireland, including those responsible for supply chain management, research and development, government affairs, and commercial operations.
Lannett Company, Inc. (NYSE: LCI) today reported financial results for its fiscal 2018 fourth quarter and full year ended June 30, 2018.
“For both the fiscal 2018 fourth quarter and full year, our revenue and adjusted net income solidly improved over last year, and our overall financial performance was within our full-year guidance,” said Tim Crew, chief executive officer of Lannett. “Operationally, in the second half of fiscal 2018, we completed several transactions acquiring more than 25 market-ready or near-market-ready product lines that have added to our pipeline and in-licensing several more. In addition, we implemented a restructuring plan at our Cody Laboratories subsidiary and began the consolidation of our product distribution function. Importantly, we improved the pace of new product launches and these products were well received by our customers.
“As we announced last week, the company was informed that its contract with Jerome Stevens Pharmaceuticals (JSP) will not be renewed upon its expiration on March 23, 2019. The company has been assured of a continuous supply of the products covered under the agreement through March of next year, and we expect these products to significantly contribute to our financial performance in fiscal 2019.
“Our overarching goal is to fortify our business as we build for the future, while also preparing for the impact of the eventual expiration of the JSP contract. The eight products we have launched since January 1st of this year are expected to contribute more than $50 million to revenues in the current fiscal year. Given our large pool of approved but not yet launched products and filed drug product applications awaiting approval at the FDA, our goal is to continue this recent rate of launching products. Moreover, we will implement a number of new cost reduction initiatives, which we estimate will generate substantial cost savings in fiscal 2019.
“To summarize, our path forward is clear and includes launching products already under our control, increasing our product offering through strategic relationships and product development, and lowering our costs. We believe we are making progress on all of these fronts.”
For the fiscal 2018 fourth quarter, on a GAAP basis, net sales were $170.9 million compared with $139.1 million for the fourth quarter of fiscal 2017. Gross profit was $66.5 million, or 39% of total net sales, compared with $58.9 million, or 42% of total net sales. Research and development (R&D) expenses were $8.3 million compared with $11.4 million for the fiscal 2017 fourth quarter. Selling, general and administrative (SG&A) expenses increased to $20.6 million from $16.5 million. Restructuring expenses were $4.1 million compared with $1.8 million. During the fiscal 2018 fourth quarter, the company recorded $25.0 million of asset impairment charges, primarily related to restructuring of the company’s Cody Laboratories subsidiary. Operating income was $8.6 million compared with $28.8 million. Interest expense was $21.2 million compared with $20.7 million for the fourth quarter of fiscal 2017. The company recorded an income tax benefit of $0.9 million versus income tax expense of $3.1 million in the prior-year period. Net loss attributable to Lannett was $11.4 million, or $0.30 per share, versus net income attributable to Lannett of $5.7 million, or $0.15 per diluted share, for the fiscal 2017 fourth quarter.
For the fiscal 2018 fourth quarter reported on a Non-GAAP basis, adjusted net sales were $170.9 million compared with $139.1 million for the fourth quarter of fiscal 2017. Adjusted gross profit was $76.0 million, or 44% of adjusted net sales, compared with $68.0 million, or 49% of adjusted net sales, for the prior-year fourth quarter. Adjusted R&D expenses were $8.3 million compared with $11.4 million. Adjusted SG&A expenses were $17.4 million compared with $16.2 million. Adjusted operating income was $50.3 million compared with $40.4 million for the prior-year fourth quarter. Adjusted interest expense was $16.6 million compared with $16.0 million for the fourth quarter of fiscal 2017. Adjusted income tax expense was $9.6 million compared with $10.0 million in the prior-year period. Adjusted net income attributable to Lannett increased to $24.5 million, or $0.64 per diluted share, from $15.1 million, or $0.40 per diluted share, for the fiscal 2017 fourth quarter.
For the fiscal 2018 full year, on a GAAP basis, net sales were $684.6 million compared with $637.3 million for fiscal 2017. During fiscal 2017, the company recorded a $4.0 million adjustment to a settlement agreement with one of its customers, which resulted in total net sales for the prior year of $633.3 million. Gross profit was $288.7 million, or 42% of total net sales, compared with $301.2 million, or 48% of total net sales, for fiscal 2017. R&D expenses were $29.2 million compared with $42.1 million. SG&A expenses were $82.2 million compared with $73.5 million. Restructuring expenses were $7.1 million compared with $7.2 million. In the current year, the company recorded a loss on sale of intangible asset of $15.5 million and asset impairment charges of $25.0 million. In the prior year, the company recorded acquisition and integration-related expenses of $4.0 million and asset impairment charges of $88.1 million. Operating income was $129.7 million compared with $86.4 million. Interest expense was $85.6 million compared with $89.4 million for fiscal 2017. The company recorded an income tax expense of $22.4 million compared with $1.1 million in the prior year. Net income attributable to Lannett was $28.7 million, or $0.75 per diluted share, versus net loss attributable to Lannett of $0.6 million, or $0.02 per share, for fiscal 2017.
For the fiscal 2018 full year reported on a Non-GAAP basis, adjusted net sales were $684.6 million compared with $637.3 million for fiscal 2017. Adjusted gross profit was $326.2 million, or 48% of adjusted net sales, compared with $343.7 million, or 54% of adjusted net sales, for the prior year. Adjusted R&D expenses were $29.2 million compared with $42.1 million. Adjusted SG&A expenses were $71.0 million compared with $71.3 million. Adjusted operating income was $226.0 million compared with $230.3 million for the prior year. Adjusted interest expense declined to $65.4 million from $68.7 million for fiscal 2017. Adjusted income tax expense was $45.8 million compared with $57.2 million in the prior-year period. Adjusted net income attributable to Lannett increased to $118.2 million, or $3.10 per diluted share, compared with $107.9 million, or $2.86 per diluted share, for fiscal 2017.
Guidance for Fiscal 2019Based on its current outlook, the company provided financial guidance for the 2019 fiscal year, as follows:
GAAP
Adjusted
Net sales
$580 million to $610 million
$580 million to $610 million
Gross margin %
38% to 39%
44% to 45%
R&D expense
$28 million to $32 million
$28 million to $32 million
SG&A expense
$63 million to $66 million
$63 million to $66 million
Integration and restructuring related expense
$7 million to $8 million
$ —
Interest expense
$81 million to $83 million
$63 million to $65 million
Effective tax rate
22% to 23%
22% to 23%
Capital expenditures
$30 million to $35 million
$30 million to $35 million
As previously announced, the company will perform an analysis to determine the potential for impairment of its goodwill and certain long-lived assets as a result of the nonrenewal of the JSP agreement in the first quarter of fiscal 2019. The company believes that the impairment assessment will likely result in a material impairment of its goodwill, which is not included in the company’s GAAP guidance above because at this time the company cannot estimate the amount or a reasonable range of amounts of such impairment. Any impairment would result in a noncash charge to GAAP earnings in the first quarter of fiscal 2019; any such charge will not affect the 2019 Non-GAAP guidance amounts.
Conference Call Information and Forward-Looking Statements Later today, the company will host a conference call at 4:30 p.m. ET to review its results of operations for its fiscal 2018 fourth quarter and full year ended June 30, 2018. The conference call will be available to interested parties by dialing 866-436-9172 from the U.S. or Canada, or 630-691-2760 from international locations, passcode 47462189. The call will be broadcast via the Internet at www.lannett.com. Listeners are encouraged to visit the website at least 10 minutes prior to the start of the scheduled presentation to register, download and install any necessary audio software. A playback of the call will be archived and accessible on the same website for at least three months.
In January 1977, five landmark health surveys, led by the famous Framingham Heart Study, reported a “striking” revelation about HDL cholesterol—a.k.a. the “good cholesterol.” The higher the HDL in a person’s bloodstream, researchers had found, the lower the risk of heart attack. This held true for every age group and both sexes. In fact, HDL was the only reliable predictor of heart disease risk in people over 50, which is the age group people who have heart attacks are likely to fall into.
In observation after observation ever since, the relationship between HDL cholesterol and heart health has been so outrageously robust it’s hard to imagine that HDL doesn’t play a fundamental role in preventing the disease process. This has led drug companies to spend billions of dollars developing and testing HDL-raising drugs, with the expectation that heart attacks will be prevented, lives saved, and investments recouped many times over.
And yet those drugs have universally and spectacularly failed. “Dashing hopes,” as a 2016 New York Times headline proclaimed, “a cholesterol drug had no effect on heart health.” The question is: why? One likely possibility is that despite all signs to the contrary, HDL cholesterol plays no mechanistic role in heart disease: that, put simply, the two have no causal relationship. Maybe high HDL doesn’t protect us from heart attacks. Maybe it’s just a sign of good heart health, a marker.
Now health researchers are wielding a new tool they hope will let them determine the true causes of chronic disease. And it comes through a surprise route: genetics. Researchers say that by employing innate genetic differences between people—an inborn susceptibility to alcohol, say, or to higher cholesterol levels in the arteries—they can now mimic, at much less effort and expense, the kinds of large trials that would be necessary to determine if an HDL-lowering medicine is really beneficial. The new technique, called Mendelian randomization, is already being used by drug companies to make billion-dollar decisions about which drugs to pursue.
Here’s how it works, using HDL as the example. At the moment of conception, some of us inherit specific variants of genes that boost our HDL levels. If HDL really protects against heart disease, then people with more of these HDL-raising variants should have lower rates of heart disease and live longer than those who get other variations. If so, it suggests that elevating HDL through drugs or diet is an excellent idea. Before randomly assigning people to different HDL-raising drugs or diets in huge, costly studies, the equally random lottery that determines which gene variants we inherit can be used to gauge whether such trials would be worth the risk and investment.
“We’ve all been recruited into an experiment, without knowing, it at conception,” says George Davey Smith, an epidemiologist at the University of Bristol in the UK, who has championed the new method as an invaluable tool for untangling causality and correlation throughout medical research.
The method is already settling long-standing and critical questions about heart disease—among other things, putting to rest 40 years of uncertainty about HDL. In 2012, a large international collaboration reported that despite the impressive correlation between HDL and heart disease, those of us born with genes that naturally raise our HDL cholesterol have no fewer heart attacks than people without those genes. In short, though HDL is inversely correlated with heart disease, it plays no causal role. And that’s why the drugs failed. They went after a target that turned out to be just a bystander.
Correlation is not causation
The prime movers in what might be a pharmaceutical-industry and public-health revolution are Davey Smith and his Bristol colleague Shah Ebrahim, physicians who bonded in the 1990s over their taste in rock music (Velvet Underground and Captain Beefheart) and, later, their shared disillusionment with epidemiology’s failure to zero in on the causes of common health problems. In 2000, Davey Smith and Ebrahim wrote a lengthy editorial for the International Journal of Epidemiology, asking whether the time had come for the entire field to “call it a day.”
They noted that epidemiology has an admirable track record in identifying the causes of infectious diseases from AIDS to Zika, in part because hypotheses can be tested in laboratories and in the field, and because governments have been easily convinced to do such tests. But chronic conditions like heart disease and cancer present an entirely different challenge. Epidemiology can provide correlations between diet, lifestyle, and disease, but that’s all it does. It generates hypotheses about possible causes, and little more than that. What concerned Davey Smith and Ebrahim was that epidemiologists had taken to jumping the scientific gun: they were advising people how to live and eat on the basis of mere hypotheses, without doing the rigorous (and very expensive) trials that might determine whether they were right.
In medicine, the experiments that rigorously test hypotheses are known as randomized controlled trials. Subjects are randomly assigned (often by the thousands or tens of thousands) to an intervention (a drug or diet) or a control (a placebo) and then followed for long enough (years, if necessary) to determine the effect unambiguously. In these trials, randomization is absolutely critical: it minimizes the chance that other characteristics of the subjects—behavioral, cultural, educational, socioeconomic—will influence the outcome. But such trials can be exorbitantly, if not prohibitively, expensive. They can be unethical. And like any scientific experiment, even when done with meticulous care, and after costing hundreds of millions of dollars, they can still get the wrong answer.
By 2000, Davey Smith had an inkling that the lottery of genetics could provide a solution. He had been studying the relationship between heart disease and an amino acid called homocysteine. High homocysteine levels, like low HDL, are often associated with heart disease, but is homocysteine a culprit or just an innocent bystander? Researchers were beginning to do clinical trials using folic acid (a B vitamin) to lower levels of the amino acid. Davey Smith realized that if people inherited higher or lower homocysteine levels naturally, this could help settle the causality question. If their heart disease risks were also different, that would be very telling.
What was exciting is that almost everything else about these two groups would be determined by chance, just as in a randomized trial. The randomization wouldn’t only hold true for the behaviors, exposures, and life stories that followed each person’s birth. It would also apply, in theory, to all other genetic influences. Each person with homocysteine-raising or homocysteine-lowering gene variants would bring to the experiment a genome that was otherwise thoroughly shuffled, since the combination of genes we inherit from our mother and father is a matter of chance.
The devil, Davey Smith knew, would be in the details. He realized there were many ways Mendelian randomization could fail. Just one is a phenomenon called pleiotropy—when particular genes affect more than one trait. Imagine, for instance, that homocysteine- or HDL-related variants also had subtle effects on intelligence. That could shape people’s socioeconomic status and overall health. It would “confound” the effort to isolate homocysteine’s or HDL’s role in heart disease by introducing a new causal factor.
George Davey Smith
U. BRISTOL
In 2000, Davey Smith attended a conference with Ebrahim in northern India. Over the course of a four-hour taxi ride, Davey Smith briefed Ebrahim on his thinking. “He had to explain it three times before I actually understood what he was trying to say,” Ebrahim says. Three years later, the two Bristol researchers introduced Mendelian randomization in a 22-page article in the International Journal of Epidemiology, explaining not only how to use it but all the possible ways they could imagine to use it incorrectly.
Gene discoveries
Before their idea could be put to use, the field of genetics, too, needed to clean up its act. Researchers working to locate the genetic basis of human traits had been battling their own epidemic of spurious associations. Finally, though, studies became large enough (routinely involving hundreds of thousands of people) to unambiguously detect genetic variants that contribute to virtually every imaginable aspect of human existence, from physical characteristics and personality to risk of disease. Now, says Davey Smith, scientists have “literally tens of thousands of genetic variants” with which to work.
Today, Mendelian randomization may have settled some of the thorniest issues of cause and effect facing heart doctors—including not just HDL (not causal) and homocysteine (not causal) but also “bad” LDL cholesterol (causal) and even C reactive protein, a measure of the inflammatory process that got considerable media attention as a potential cause of heart disease and now, also, seems to be no more than an association.
Now the pharmaceutical industry is working with researchers from Bristol and elsewhere to predict the results of planned clinical trials before they’re complete, and so de-risk the exorbitantly expensive drug development process. This means not just predicting which drugs are likely to work or not, but how big an effect to expect and how large a trial is really necessary to find out.
“Companies are putting up hundreds of millions to test these drugs,” says Brian Ference, an interventional cardiologist and public health researcher who runs the Center for Naturally Randomized Trials at Cambridge University in the UK. If these companies choose the wrong target, or don’t use enough subjects—if the trial isn’t “powered” correctly—“they’ll not only lose their investment but lose years of work,” he says. “And without question that has been happening repeatedly in clinical trials in heart disease space for 40 years.”
Just too easy
As researchers realize the potential of Mendelian randomization to shed light on what’s truly causal and what’s just association, excitement is spreading to other disciplines with their own cause-and-association questions—even into fields such as social science, psychology, and economics. By identifying genetic variants that predispose individuals to be fatter or leaner, that influence how they metabolize alcohol and thus whether or not they are likely to become drinkers, researchers can begin to isolate the effect of these “exposures” on everything from depression, schizophrenia, and other psychopathologies to earning power and even academic achievement.
An explosion of studies—more than 250 so far this year—have tried to answer such questions about the human condition, sometimes using hundreds of gene variants tied to the trait being studied: whether being taller, for instance, causes men to earn more (apparently yes, with an extra two inches being worth $1,000 to $2,000 a year), whether neuroticism leads to smoking or vice versa (still unclear), whether wearing glasses turns people into bookworms (apparently the opposite—it’s the studying that causes myopia), and whether cannabis use can contribute to schizophrenia (leaning toward yes).
Davey Smith, Ebrahim, and their fellow pioneers of Mendelian randomization now seem as worried about how the technique will be misused as they are excited about its promise. Even when it’s done right, says Davey Smith, it’s easy to overinterpret results. For instance, Mendelian randomization can tell researchers whether a gene variant working since the moment of conception increases or decreases disease risk—the lifelong impact of that gene. But that’s a different question, says Davey Smith, from “whether taking a drug or changing your diet [at] age 60” is beneficial. Finding that out would still require a clinical trial.
What may worry Davey Smith and others most is that as genetic databases have multiplied, tying genes to virtually any imaginable biological or even behavioral variable, studies of cause and association have become almost effortless.
The University of Bristol hosts a platform called MR-Base that lets anyone carry out virtual experiments without collecting any new data.
“You can do these studies now, sitting at your desk, in 10 minutes. It’s just too easy,” says Ference. “Because of the flood of studies coming out, it may very well fall into disrepute.”
